Lift in Fonterra's milk price range good news for New Zealand

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A lift in the forecast farmgate milk price is not only good news for farmers but also the entire country, managing director of co-operative affairs at Fonterra Mike Cronin says.

Fonterra raised its forecast farmgate milk price this week to a midpoint of $9.20, a 50-cent increase, that will contribute $13.8 billion to the New Zealand economy this season.

"The amount of milk we're collecting across the country is down on last season, from some pretty obvious challenging growing conditions out there and that factors in a bit as well," Cronin told The Country Sport Breakfast's Brian Kelly.

"But it's good news and it represents a whole lot of really hard work by our farmer-owners
right across the supply chain."

The increase was driven by both strong demand and constrained supply, according to Cronin.

Demand globally remained fairly healthy, although it did vary across different countries, he said.

On the other side, global milk supply growth is forecast to track below-average levels, with European milk production growth down on last year and US milk growth slowing due to high feed costs.

As for supply in New Zealand, Fonterra had revised this season's forecast down 1.6 per cent - 1,500 million kgMS, Cronin said.

"That contributed to the jump in GDT prices, where we saw good prices right across the board."

While the higher price put pressure on Fonterra's margins in its consumer and foodservice businesses, the co-op said prices in its ingredients business were favourable for milk price and earnings at this stage.

As a result, Fonterra said it remained comfortable with its current earnings guidance of 25-35 cents per share.

Meanwhile, the co-op remained ready for any changes brought on by the country's shift to red light traffic restrictions and the imminent spread of Omicron, Cronin said.

"There's a whole lot of new challenges with Omicron, it's a different sort of beast [with] its higher transmission rate.

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"We're just making sure we can collect every drop of milk off the farm and that we're meeting all our customer requirements in between."

Fonterra's Covid-19 incident management team had been tasked to respond to new developments and were "well practised" at this stage, Cronin said.

"There's continuing energy and stamina needed to keep on top of things but it's looking not too bad."

The co-op had had safety controls in place throughout the pandemic, which it scaled up or down depending on the risk, Cronin said.

"We've always been pretty cautious with our safety for our people and for our production right through and that continues to be the same case through the red traffic light restrictions and we've taken all the necessary precautions that we need."

Cronin said he was "fully boosted" and strongly encouraged people to get a booster shot against Omicron "as soon as they can".